Italy's Renzi completes labour reform, growth needed for jobs

Italy's Prime Minister Matteo Renzi attends a joint news conference with Palestinian President Mahmoud Abbas in the West Bank city of Bethlehem July 22, 2015. REUTERS/Ammar Awad/Files

ROME (Reuters) - The government of Italian Prime Minister Matteo Renzi on Friday put the finishing touches on his signature employment reforms which he says are already rousing a sclerotic labour market despite fierce resistance from trade unions.

The final steps approved by cabinet aim to make job centres more efficient, broaden unemployment benefits and give employers more power to monitor their workers’ performance. They complete a policy package first presented by Renzi 15 months ago.

The main parts of the reform, which kicked in early this year, ease firing restrictions for large firms and offer temporary tax breaks for companies that hire workers on permanent contracts.

The so-called “Jobs Act” has been welcomed by big businesses which have long complained about how difficult it was to fire workers and are lapping up the tax breaks.

Alberto Bombassei, president of brake-maker Brembo, said the policy has created “a new willingness to hire on open-ended contracts.” This year his company has added 150 Italian workers to the 7,000 it employs worldwide.

Common criticisms of the reform are that it does not touch Italy’s 3.5 million-strong public sector and does not affect the employment contracts of anyone who already has a job.

This may discourage workers from moving jobs, if they fear that a new position would be less secure than the one they are leaving, creating an even less fluid labour market.

Most labour experts say it will take years to gauge the real impact of the changes, but politicians have little patience and every piece of fluctuating monthly data has been held up by rival factions to prove the new rules are working or failing.

Encouraging data for July were “thanks to the Jobs Act,” Renzi said this week, but a closer look at the figures showed a rise in employment was mainly due to older people having to retire later, rather new jobs created for the young.

Michele Tiraboschi, a professor of labour law at Modena University, said any credit should therefore go to the hike in the minimum retirement age passed by Mario Monti’s government in 2012, not to Renzi.

“The Jobs Act won’t create a single new job,” he said, arguing that the reform alters labour rules for the fifth time in five years but does nothing to foster economic growth, invest in technology or better prepare young people for work.

Ivano Simeone, 36-year-old from Calabria who was hired by a Leukemia charity on an open-ended contract in July after eight years of temporary jobs, said he was grateful for Renzi’s reform but he had no illusions about the future.

“If it wasn’t for the Jobs Act I would probably not have got this job but the new rules also mean people like me can be fired at any time,” he said. “A permanent job doesn’t mean what it meant before.”

“NO EXCUSES”

Italy has fewer people in work as a proportion of the population than any euro zone country except Greece and millions are so discouraged they are not even looking for a job. The unemployment rate is 40 percent among job-seekers below 25 years old.

Renzi knows large-scale job creation can only come if real economic growth replaces a decades-long stagnation. But with a nascent pick-up in place he hopes that by making it easier for firms to fire people they will be less reluctant to hire them.

“Now companies have no excuses,” he said after scrapping the talismanic article 18 of the labour code which obliged firms with more than 15 employees to reinstate workers that are ruled to have been wrongly dismissed.

He also wants firms to offer permanent contracts rather than the temporary ones they have relied on overwhelmingly in recent years, which condemn workers to constant uncertainty.

The success of this second objective is already proved by the hundreds of thousands of temporary contracts being converted into open-ended ones so far this year.

Trade unions and other critics say firms are merely taking advantage of generous but temporary tax breaks which exempt them from paying employees’ pension contributions for three years if they hire them before the end of 2015.

They doubt the trend will continue if the tax breaks are not renewed next year, and fear mass firings after three years when firms will have to pay their workers’ pension contributions again.

Milan labour lawyer Fabrizio Daverio agreed this risk existed, but said the Jobs Act removed obstacles to hiring and may “get the ball rolling” so that firms continue to take people on in the medium term if a stable economic recovery sets in.

“This reform is a gamble. If the economy improves then the gamble may be won, but we will need a couple of years to know that, not a few months,” he said.